New Zealand: Daisy-chaining of divisionals to be nipped in the bud following Government review?

Published on 20 Sep, 2016

A New Zealand Government review has commenced under which the facility to “daisy chain” divisionals from applications proceeding under the Patents Act 1953 is under threat. In this article, we examine some of the rationale behind this review – and conclude, all things considered, that changes are likely.

“Old Act”, “new Act” and “daisy chaining”

New Zealand patent applications are presently binary. They are either what we term an “old Act” case (subject to the Patents Act 1953 throughout its lifecycle), or a “new Act” case (subject to the Patents Act 2013). The critical date here was 13 September 2014, which corresponds to the date of commencement of the new Act – an application for which a complete specification was filed in IPONZ prior to this date is an “old Act case”; and an application filed on or after this date is a “new Act case”.

The one exception to this rule arises with respect to divisional applications. A divisional filed from an old Act case is itself to proceed as an old Act case, irrespective of whether it was filed before, on, or after the date of commencement. Availing of this facility is advantageous in two main respects: a) the patentability criteria prescribed under the old Act are perceptibly softer; and b) the “daisy-chaining” of old Act divisionals is not restricted, meaning that in theory, one can keep the subject matter of a patent application pending throughout its 20-year lifecycle.

Unsurprisingly, a divisional filed from a new Act case will itself proceed as a new Act case. The new Act prescribes not only higher patentability standards, but also limits the period that a divisional can be filed to five years from the filing date of the original “parent” application.

As such, from a patentee’s perspective, it is clearly advantageous for a divisional to proceed as an old Act case, if possible – lower patentability standards and the facility to daisy chain for 20 years makes this a fairly uncontroversial statement. Indeed, this was identified in our earlier article as one of the main incentives for bringing forward the filing of a New Zealand patent application to before the date of commencement (i.e., to capture an application as an old Act case).

Government review

New Zealand’s Ministry of Business, Innovation and Employment (“MBIE”) has published a paper entitled “Divisional patent applications: Possible changes to the transitional provisions in section 258 of the Patents Act 2013”. Public submissions have been sought, with the closing date being Friday, 14 October 2016.

As stated in the paper, the purpose of the review is to:

..seek feedback on whether or not the transitional provisions in section 258 of the Patents Act 2013 (“the 2013 Act”) relating to divisional patent applications should be amended to limit when divisional applications can be filed or examined under the Patents Act 1953 (“the 1953 Act”), and if so, what those amendments should be.

In other words, there has been a recognition on the Government’s part that the present arrangement could give rise to unintended consequences. Specifically, it is plausible that we could still have the last of the old Act divisionals pending in the year 2033. The question, therefore, is whether the transitional provisions attached to the Patents Act 2013 are consistent with the policy intent underpinning such legislation.

Policy intent of the Patents Act 2013

Paraphrased heavily, the policy intent of the Patents Act 2013 could be summarised as, on the one hand, a recognition that the primary users (patentees) of the New Zealand patent system are foreigners – and on the other hand, that those principally encumbered by thickets of broad patents (as were achievable under the old Act) are locals (third parties). The new Act thereby sought to redress any imbalance – be it real or perceived – in favour of third parties.

Hand-in-hand with this broad policy objective comes the realisation that the facility to daisy chain old Act divisionals indefinitely (of course, not beyond the 20 year patent term) created an undue burden on third parties. Whether a patent applicant intent on maintaining pendency (and thereby uncertainty on the part of competitors looking to enter the market) for a period of two decades was abusing, or merely making use of the system is immaterial – the point is that with this possibility came a perception on the part of the New Zealand Government that third parties were being commercially paralysed in the interim. In general, locals could not afford to do battle with foreign corporations during opposition or revocation proceedings – and the facility to daisy chain indefinitely meant that even if they could (and assuming that they won), the next generation divisional/s would effectively block them for the entire 20-year patent term.

Of course, the above is an extreme/unlikely scenario. However, it nonetheless exists as defining the practical limits to which the present transitional provisions could be worked in favour of the patentee – and this has been identified as potentially contrary to the spirit of the new legislation.

Proposals under the review

The review puts forward three main proposals:

Do nothing/maintain the status quo. This option will likely prevail should public submissions fail to identify indefinite daisy chaining as being an issue.

Establish a final date by which no further old Act divisionals may be filed. This option arguably goes too far in respect of removing certainty for patentees (taking away their right to file a divisional) and may be inconsistent with New Zealand’s international obligations (Paris Convention, Articles 4G(1) and 4G(2)).

Establish a date after which any divisional filed from an old Act case will proceed under the new Act. This is MBIE’s preferred option having regard to the competing factors identified above.

Is indefinite daisy chaining actually an issue?

The review identifies that as of mid-July 2016, there were still 3054 pending applications made under the old Act. Of these, more than half (1693) were divisionals. Further, 661 of the 1693 divisionals are “first generation” divisionals (divided from applications that are not themselves divisional applications); 691 of the 1693 are “second generation” divisionals (divided from applications that are first generation divisionals) and 341 are “third generation” divisionals, divided out of second generation divisionals.

The data thereby show that whilst the practice of daisy chaining is indeed being followed, there is a drop-off from second to third generation (and likely beyond). This is unsurprising – and suggests that in the extreme situation whereby old Act divisionals could conceivably still be pending in 2033, it is highly unlikely that there would be many such applications. This, itself, is somewhat self-evident even in the absence of any data. However, the issue at hand for MBIE in conducting this review is whether the mere facility to have old Act divisionals still pending in 2033 is contrary to the policy underpinning the new Act. To this end, there are also significant implications for IPONZ:

The effect of this is that the Intellectual Property Office of New Zealand (“IPONZ”) must maintain the capacity to examine 1953 Act divisional applications potentially for up to twenty years after entry into force of the 2013 Act. This requirement would mean examiners would need to be trained to examine applications under both Acts until at least the early 2030s. This imposes additional costs and complexity for IPONZ which may mean that IPONZ fees may be higher than might otherwise be the case.

One could suspect, on the basis of the data presented, the longer-term implications for IPONZ and the over-arching policy incentive to promote the interests of third parties that a significant “issue” will be identified throughout the public submission process. In such circumstances, the status quo is unlikely to prevail and options 2 and 3 (of which the latter is the only reasonable option) may come to be considered in greater depth at Government level. That is, after a certain to-be-determined date, a divisional filed from an old Act case will proceed as a new Act case, subject to (amongst other restrictions) the five year limit on daisy chaining identified above.

Conclusion

We are presently only three years into the new Act – and as such, any genuine issues relating to daisy chaining are yet to be encountered in practice. That said, the Government review is predicated largely on preventing any such issues before such time as they manifest in day-to-day New Zealand practice. In that sense, there was a certain inevitability to this review, given that the daisy chaining facility had been identified as a possible unintended loophole immediately upon release of the final text of the new Act.

All things considered, we suspect that the facility to daisy chain old Act divisional applications indefinitely will soon be “nipped in the bud”.

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All of Shelston IP’s Australian-registered patent attorneys are also dual-registered to practise in New Zealand. Our New Zealand patent practice thereby leverages significantly from our Australian operation – and our closeness in respect of law, economics, culture and physical distance means that there are compelling drivers for clients to avail of Shelston IP for their Australasian IP matters.

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